Metaverse is a virtual platform that allows people to interact, communicate, and build upon virtual and augmented realities and, even so, live on them. This Metaverse is not indeed a new concept. There are several attempts of channelizing into a “world” in books, comics, video games, and other similar aspects. However, in recent times, it has been extensively used. Some plots are being sold in the Metaverse, and with facility management groups indulging into this “world,” there is an anticipation of huge growth here.
Although this seems an intriguing and fast-growing new technology, there seems to be trouble as any law does not comprehensively and explicitly regulate it. Thus, it becomes a free space with people interacting like a “laissez faire” environment. This absence of regulations in the Metaverse platform creates possible problems in the domain of intellectual property, data privacy, and other areas of law. Therefore, this Blog Post attempts to identify and provide a basic understanding of the laws or regulatory devices needed to tackle the Metaverse.
Having snuck into our daily parlance last year with the rebranding of Facebook, Meta, short for Metaverse, is slowly gaining popularity and legitimacy in today’s world. However, what is this unknown called the Metaverse?
As Zuckerberg says, Metaverse is the technological manifestation of the word “Meta” itself, meaning “beyond.” As a concept, it can be defined as a computer-generated universe in itself. It is a simulated virtual environment that allows interactions, just like the internet, in a much more tangible and augmented way. The idea of a Metaverse has been around inscience fiction and fantasy for decades. Movies like The Matrix and Ready Player One have offered a glimpse into the possibilities of augmented reality. Initial breakthroughs in the field have been in the gaming industry mainly. Games like Second Life and Sims create mini universes with much interoperability and real-time communication with other online users. Tech companies have also dabbled withvirtual fashion shows, music concerts, and e-workspaces.
The current dialogue on Metaverse is much more far-reaching and complex than this. The goal is to create an all-encompassing, shared, open world where digital avatars represent users using high-end technologies enabling real-time communication, virtual reality projections, holography, and other similar immersive experiences. All this materializes into a 3D internet-like platform where it feels like being inside and encapsulated by the vastness of the internet with possibilities of exploration like the real world. Zuckerberg describes this as “experiencing” the internet instead of “seeing” it. A muchaccepted and popular illustration of Metaverse in the industry has been given by author and tech expert Matthew Ball, who describes it as “…a massively scaled and interoperable network of real-time rendered 3D virtual worlds that can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.”
Human users can enter the Metaverse using Extended Reality (XR) and user interaction methods under the technology element, which is one of the eight pillars of the Metaverse (e.g., manipulating virtual objects). Through user interaction and XR, Computer Vision (CV), Artificial Intelligence (AI), Blockchain, and robotics/Internet of Things (IoT) may collaborate with the user to manage a variety of activities inside the Metaverse. While cloud computing is well known for its highly scalable computational power and storage capacity, edge computing attempts to improve the performance of delay-sensitive and bandwidth-hungry applications by managing the local data source as pre-processing data available in edge devices.
This idea of Metaverse is also supplemented by the incorporation of many upcoming digital technologies like the Blockchain for enhancing and securing connections, NFTs (Non-Fungible Tokens) to facilitate financial interactions and create digital assets, XR, which assists in creating third-dimensional interspace, and many more. All these parallel and contemporary developments have been very useful in turning every facet of the Metaverse digital and allowing it to expand its scope.
Because a full-blown Metaverse is yet to be formed, the specifics regarding the accessibility, ownership, and technical or business model are uncertain. It is, although contended by stakeholders, that Metaverse is perceived as a community project without the monopoly of a single organization or a group of people. Inclusivity and accessibility are essential themes to consider while working towards the Metaverse.The Metaverse Standards Forum is an initiative composed of about 2000 companies, NGOs, and standard authorities aiming to build the foundation of the Metaverse on free access and community standards. This is much needed amidst concerns regarding Zuckerberg’s Metaattempting to exercise a monopoly over the domain and the anti-competition stances it has taken in the past.
2. Real Estate Tokenization
A. What is Real Estate Tokenization?
Theadoption of blockchain technology in real estate has led to a radical transformation of the industry. It has made it easier for people to own digital real estate, allowing people who were previously excluded due to a lack of resources to participate and hiding problems such as lack of transparency and trust. Real estate has historically been illiquid, requiring substantial financial investments and drawn-out transaction procedures. However, tokenization has changed the situation. Additionally, the blockchain technology that underpins it has enabled previously unheard-of transparency. Having stated that, purchasers may now complete deals utilizing tokenized real estate in an immutable manner.
Real estate tokenization turns a property’s worth into a token that can be owned and transferred digitally and is recorded on a Blockchain. Each divisible token represents a small portion of the real estate’s ownership. Real estate is fractionalized into tokens and maintained on a decentralized database through the process of real estate tokenization. Blockchain is the name given to this decentralized database, which functions as a kind of digital ledger for information storage. The blockchain network verifies, synchronizes, and shares the distributed ledgers on which real estate tokens are recorded with all network members practically instantly, permanently documenting an authentic ledger of transactions that is broadly available to the public.
The digital tokens are generated and issued on a blockchain during a Security Token Offering (STO), also known as a Tokenized Security Offering or a Tokenized Asset Offering. Each ownership portion is transformed into a token and then encrypted to award ownership. The ownership may then virtually instantaneously be transferred from investor to investor utilizing alternative trading systems (ATSs) on digital securities exchanges for a relatively nominal price.
B. Working of the Real Estate Tokenization
Like crowdfunding, real estate tokenization divides an asset into manageable portions using a smart contract, an automated program that resides on a blockchain. Any person who purchases or possesses a token also owns a portion of the property. They are entitled to the underlying asset and the earnings and losses that go along with it.
To better grasp it, let us imagine someone possesses Rs. 1,00,000 piece of property and urgently needs money. However, the investors that approach them lack the necessary funds, and the property owners are averse to selling their property for a lower price. Tokenization is useful in situations like this. Each unit will represent Rs. 1,000 worth of digital tokens, and their assets will be dispersed. In this manner,investing in the asset over time is made simple. Due to the decentralized nature of the network used, everything is completely transparent.
3. Other Issues and Challenges in Metaverse
Metaverse is a relatively new concept, with people having limited or no knowledge about its usage and performance. As much as the opportunities are lined up in using the Metaverse, several adversarial effects are also connected. Due to the lack of regulations and laws, the Metaverse will eventually lead to several disputes.
The major foreseen issues in the Metaverse intersecting with the projects and infrastructure sector are explained hereafter:
A. Data Privacy and Data Security
Data security and privacy are among themost significant issues in the Metaverse. This concern arises due to the lack of regulation on security and privacy issues. The issues of identity theft, hacking, and invasion of privacy are significant concerns without any current solution. Metaverse, as discussed above, is a platform for communication. Usually, whenever an individual accesses any application or a website, the permissions for the usage of information, such as location, camera access, and other related information, are to be provided by such individuals. However, there is no such regulation for the third-party usage of data.
Several countries follow laws and regulations to protect the data privacy of individuals. One such common and famous law is the Global Data Protection Regulation, also known asGDPR. GDPR provides rules for protecting and free movement of personal data. However, GDPR, along with all the domestic laws, is very jurisdictional specific. As such, a lack of regulation in the Metaverse threatens privacy.
With the introduction of thePersonal Data Protection Bill, 2022 in India, there is a scope for regulating the data in the infrastructure and projects sphere if the Bill is enacted as law. The goal is to establish guidelines for processing digital personal data in a way that acknowledges the necessity to handle personal data for legitimate reasons and the right of persons to protect their data. However, privacy remains an issue until this Bill is passed.
B. Intellectual Property Rights (IPR)
Metaverse is a virtual world with avatars, virtual items, spaces, and other infrastructure. Somewhere, these virtual items are covered under trademarks and copyrights. If an individual wishes to use the mark/work of another individual, it should qualify for specific conditions such as a valid license, fair use of the mark, requisite approvals, and other similar conditions.
Legally, more than 180 countries have ratified theBerne Convention for the Protection of Literary and Artistic Works supplemented by theWIPO Copyright Treaty, providing that there should be a grant of exclusive rights between the contracting parties for the use of a copyright. In 1996, when the WIPO Copyright Treaty was introduced, the focus was on the digital environment due to its evolution. Article 1(4) of the WIPO Copyright Treaty provides that any electronic data storage would constitute a reproduction of the data and requires prior consent from the original owners of such data. This law does protect the copyright holders as electronic data also includes the Non-Fungible Tokens (NFTs), which are extensively used in Metaverse.
So, what is the issue? Even when there are several protections for copyright/trademark holders, the Convention and the Treaty also provide exceptions for the usage of such data. InAM General LLC v. Activision Blizzard Inc. and Others, the Court gave a judgment in favor of the Defendant. AM General LLC, the manufacturer of a famous military vehicle, Humvee, sued the Defendant, the publisher of Call of Duty, for using a virtual vehicle like Humvee. As per AM General LLC, this is a violation of trademarks owned by them. The Court opined that since Activision wanted to create a video game that accurately represented contemporary warfare, they used the trademarks and vehicle in a way that had artistic merit and passed the so-called Rogers test. The Rogers test was laid down inRogers v. Grimaldi wherein the Court devised a test to assess whether prior permission is required to use a trademark. The test consists of two parts: a determination of whether the trademark use is “artistically relevant to the Defendant’s work” and a determination of whether the usage is “explicitly deceptive.”
However, the reasonable implication is that there are many examples to draw from when discussing whether particular uses of IP rights are required in NFTs or the Metaverse. As has been said, nothing new is created from scratch, and traditionally, applying the idea of learning from previous events has been the foundation for creating new regulations. Another conclusion is that, at least legally speaking, the Metaverse and NFTs are not as destructive as some think since virtual worlds and digital items have already existed for two decades.
C. Finance-related issues
There are several sales in the Metaverse, and issues will gradually arise due to such fintech transactions. It is to be noted that it is not just the financial transactions but also the digital currency, digital assets, and digital banking which are the major concerns in the Metaverse.
There is an immense growth in the usage of digital banking in recent times.In India, this growth came after demonetization. It is an untold truth that people have started trusting these platforms. However, this system is not safe. There are several instances ofbank fraud that have occurred in India in the past few months. Also, the transactions in the Metaverse are through cryptocurrencies and other similar methods. However, the issue arises that the present laws cannot apply to cryptocurrencies. These currencies are a subject matter of international trade law which deals with the regulation of flat money, which is the traditional method of exchange.
D. Jurisdictional issues
Metaverse is an augmented reality; people can access it from anywhere globally through electronic devices such as phones and laptops. As such, we do not have laws per se in the Metaverse, and ascertaining the jurisdiction is very difficult. The Metaverse will also have its fair share of lawbreakers, as virtual crimes have already been reported on social media. Blocking an account with a set of rules will not be sufficient. You must have appropriate law. However, the Metaverse will not actually be located somewhere. It will be a virtual environment that transcends national boundaries. The nations and authorities must determine their own spheres of influence to provide a secure user environment.
The problem with metaverse jurisdiction is that numerous parties are spread across the globe and only communicate virtually. As a result, it is difficult to identify the parties and the location of the lawsuit to determine whether the court has jurisdiction to hear such cases. Typically, the place where the cause of action arises is the jurisdiction. However, when numerous parties are involved from various countries, the process of identifying jurisdiction has become increasingly challenging. While applying private international law, even if the Court’s jurisdiction is ascertained through the cause of action, it is difficult to ascertain the laws to be applied to decide the case considering the dearth of laws for governing and regulating the Metaverse.
With respect to the projects and infrastructure sector inside a system of Metaverse, the issue of data privacy isequally important. The development of infrastructure and projects as intellectual property inside Metaverse would be vulnerable in the absence of required laws and may fall prey to privacy, copyright violation, and black markets for such technologies.
In furtherance to this, there will also be high chances of issues with regards to the safety and security of the transactions as there is no regulation. The project and infrastructure sector involved in Metaverse will face several issues like fraudulent activities, cheating, and other similar issues in absence of a proper financial regulation. Lastly, without a proper regulation, there will be a conundrum in assessing the jurisdiction.
4. Solutions to Overcome these Challenges
The legal concerns relating to the legal jurisdiction in the Metaverse should be addressed before it is substantially developed, as the Metaverse is sweeping the globe by storm. However, we acknowledge that this would be difficult to achieve among inter-continental regulating organizations. It would be excellent to have a single authoritative authority controlling the Metaverse in an ideal world. Consequently, users of the Metaverse should be ready for any potential legal concerns that may develop.
A few solutions that reduce the challenges are as below:
A. A legal structure
Metaverse needs a legal structure with rules and regulations to be followed by all parties. This legal structure should cover the following:
- Privacy and security regulations: A privacy regulation to provide for the usage of data of the parties, such as location data, identity, and sensor data, should be protected. Additionally, there may be threats of harassment and other situations involving intruders in isolation. It will be necessary to resolve the incompatibility between the laws of the Metaverse and those of reality. Although fraud has always been a problem in digital environments, there is a reasonable probability that as more metaverses are created, they will become much more prevalent online. Fraudsters will look for weaknesses in emerging technologies like blockchain and the Metaverse. They can come upon new chances to steal identities or make “deepfakes” and fake identities. The issue for metaverse designers will be to safeguard people from these novel forms of identity exploitation. The Metaverse will probably require virtual police officers and security staff for a while, whether they are visible or not. To protect from all such things, there must be regulations to protect the privacy and security of the parties.
- IPR: While the Metaverse is providing artists, innovators, businesses, and users of cutting-edge technology with fresh and exciting opportunities, the issue of how to safeguard intangible property on the Metaverse still looms large. Recognizing that the Metaverse is built on a decentralized internet with a preference for distributed consensus methods, but present intellectual property protection structures mainly rely on centralized authority comprising regulators and Courts, is the key to fixing this issue. To protect intangible properties from infringements, it is necessary to cull out a law for using, publishing, and possessing any intellectual property in the Metaverse.
- Jurisdiction: It is challenging, as discussed above, to ascertain the jurisdiction and the applicable laws. However, with the introduction of unified law, regulators, and Courts for Metaverse, it should become relatively easier to resolve legal disputes.
- Fintech: Along with the laws on IPR, jurisdiction, and privacy, Metaverse also needs laws for regulating fintech transactions. This law should include the taxation structures in Metaverse, contractual obligations of parties in Metaverse transactions, and other similar aspects.
Apart from the legal structures, some developments are required for the involved parties’ overall mental health and safety. The Metaverse will be widely used by all, including children. To provide a safe space for children and adults equally, it is necessary to regulate the age limits, provide policies for guardian approvals, limitations upon animated violent games, and other similar age-related regulations.
Indeed, as this technology develops, there are several potential difficulties with the Metaverse that we need to consider (and perhaps govern). Even if a virtual universe is still a way off, creating the Metaverse might be complex and full of opportunities. Without question, it is crucial to ensure that the Metaverse develops into a realm that complements rather than replaces the one in which we live. As much as one can anticipate the virtual world, staying vigilant, protected, and alert in this new, massive cosmos is crucial.
It is important to understand that the Metaverse is a part of the projects and infrastructure sector but in a technology form, it is still evolving and growing at a rapid pace. A legal structure in the Metaverse will eventually lead to the benefit of the evolving project and infrastructure sector. This is because the new developments in the project and infrastructure in the technology field will be regulated, and the stakeholders of the Metaverse will be protected through appropriate rules and regulations.
Metaverse has steadily gained much attention and credibility in the past year. Apart from the growing hype in social media in the form of a pop culture reference, there is an influx of investment and brand collaborations towards the idea of Metaverse. Even in India, big names have been associated withinvesting in Metaverse. These include Infosys, Tata Consultancy, and Mahindra Tech, among others. Moreover, more and more Indian companies are looking to use the platform for publicity and expanding reach. More significantly, even top online shopping platforms like Flipkart launched “Flipverse,” allowing users to create digital avatars of themselves and shop and contest in stores of big names like Puma, Noise, Nivea, and other similar names.
From a legal standpoint, too, in India, a substantial number of companies have applied for a Trademark to be registered under the Metaverse in an attempt to confirm a spot in the Metaverse. These companies represent a wide range of types of businesses and industries looking to link themselves with the Metaverse, including the healthcare sector (Biopolice Lifescience), Education (Unilearn Edutech), food products (ITC Limited) and Clothing and apparel, and other sectors.
Amidst this intense wave to be part of Metaverse, it becomes essential to solidify and crystalize the legality surrounding the area along the way. As seen above, there is a multitude of legal facets that tangentially or directly touch upon the Metaverse and its functioning. It is imperative for lawmakers to actively take cognizance of upcoming areas of governance and tailor-make the laws for those purposes. The key is in specificity and appropriate application. The same can only be done when suitable areas of laws are identified and cut for the subject platform in question. The Blog Post sought to precisely do that.
About the Authors
Ms. K.S. Manaswi is an Associate at Luthra and Luthra Law Offices India.
Mr. Vedant Bisht is a 3rd Year Law Student, National Law School of India University (NLSIU), Bengaluru, and an Associate Editor at IJPIEL.
Managing Editor: Naman Anand
Editors-in-Chief: Jhalak Srivastav and Muskaan Singh
Senior Editor: Pushpit Singh
Associate Editor: Vedant Bisht
Junior Editor: Sathvik Reddy
Preferred Method of Citation
K.S. Manaswi and Vedant Bisht, “Metaverse and the Projects and Infrastructure Sector: Issues, Challenges, and Solutions” (IJPIEL, 9 January 2023)